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A few months ago I wrote about the great construction employment mystery: housing starts are way up, but construction employment is fairly flat. What's going on?
Today, Neil Irwin revisits this, and suggests that a new report from Goldman Sachs has the explanation:
Key to understanding the sluggish growth in construction jobs is a concept called "labor hoarding." That's what happens during a recession when companies don't fire as many workers as the decline in business would seemingly have justified. Firms don't want to lose all their quality workers and then be unable to keep up with demand when business finally turns around, so they keep people on staff even when there is not enough work to keep them fully busy.
This seems to have happened on a large scale in construction in the last few years....But because construction companies never fired as many workers as the collapse in their business would have justified, that means that over the last year, they haven't needed to hire additional workers to keep up with the uptick in business.
I think this is probably right. A day after I first wrote about this, I posted an update that took a longer-term look at housing starts and construction employment. The basic chart is on the right, and sure enough, it looks as if construction employment (the red line) didn't drop as much as you might expect based on the last big housing bust in the early 90s. Back then, there was about an 18-month lag before employment started to catch up to the rebound in housing starts, but this time, because employment didn't drop as much, it might take two or three years before we start to see job growth. In other words, it might still be about 12 months before we see a substantial uptick in construction employment.